21 February 2016
I made an awesome new budget thing last week. I hesitate to call it a budget because that word has connotations of strict categories for all expenditures, careful logging, etc. I find those things aren't helpful to me. Those might be needed in a situation where you have to coordinate between different people (e.g. a family, a business, the church), but I've found those types of system to be unhelpful for me personally.
In my plan, I first estimate how much my needed, recurring expenses are (e.g. rent, food, clarinet lessons) and then lump them all together. I figured out that I need about 70% of my paycheck to cover all of them. So that's one big category. Then I divvy up the rest of my paycheck based on percentages. 10% for tithing, 10% for withheld taxes (which I eventually get back, it turns out) and 5% each for savings and "things I want but don't necessarily need" (like an electric guitar).
That's pretty basic stuff.The interesting parts of my budget thing follow. I think the most important part of a money management system is some sort of reward mechanism. You need some sort of feedback when you save money. If you don't keep track of anything, it's harder to be motivated to spend less. If I don't buy a delicious meal at Burgers Supreme, the only effect I see is "I don't get to eat a delicious meal from Burgers Supreme." How depressing.
Another important thing is flexibility. I don't want to get thrown off just because I ended up spending $7.46 more on groceries than I thought I was going to (which is why I don't like strict categories).
Here's how my system handles these two things. Based on my recurring expenses, I figured out how much money I should always have on hand to make sure I don't run out. I chose an amount about equal to one rent payment plus two weeks worth of other expenses (mainly food) since I get paid every two weeks. This amount was about $400.
After I get a paycheck and take the percentage-based expenses out (tithing, savings, taxes, "things I want"), I should have $400. If my paycheck occurs right before the new month (and thus the new rent bill), I know I'll be able to pay rent and my other expenses until I get my next paycheck. Thus, the $400 amount becomes my measuring stick. If I save money, I'll have a surplus amount. Thus I can see how my thriftiness is rewarded. I would then divide the surplus equally between savings and "things I want". If there's a deficit, I'll make sure to be extra thrifty the next two weeks so I can get back to $400. If I consistently have a surplus or a deficit, then I would adjust the allocation between recurring expenses and savings/"things I want" accordingly. Thus, the system is flexible. I don't have to scrutinize over anything. It's a simple, easy system to follow. Pure genius.
So it might take a while for 5% of my paycheck to build up enough so I can buy an electric guitar, but at least I'll be financially stable.